Everyone has heard about the Affordable Care Act (ACA), but many dealerships are unsure of how it will affect their operations. Here’s some guidance for 2014 and beyond.
Count your employees
The rules are different for “large” and “small” employers. For purposes of its “shared responsibility” provision, the ACA defines large employers as those that employed an average of at least 50 full-time employees during the preceding calendar year. Also included in the full-time employee headcount are full-time equivalent employees (FTEs).
Full-time employees work at least 30 hours per week. FTEs are part-timers whose hours are pooled together by adding up the hours worked by all part-timers each month and dividing the total by 120. The inclusion of FTEs prevents companies from using part-timers to sidestep the shared-responsibility provision.
Another important nuance is that separate entities that are part of a controlled group are treated as a single employer under the ACA. So, if you’re the sole owner of a Honda dealership on the west side and a GM dealership on the east side, you must include both dealerships’ employees in your headcount.
Controlled entities are generally companies controlled by the same owners, such as a parent company and its subsidiary. Brother and sister entities also may qualify as a controlled group if they have five or fewer owners and the owners have “effective control.” Dealers might reorganize their ownership structures to avoid the controlled group issue.
Evaluate large dealer options
Many dealerships have the equivalent of 50 or more full-time employees and, therefore, will be classified as large employers. Under the shared-responsibility provision, starting on Jan. 1, 2015, these dealerships must (unless they have grandfathered plans) offer minimum essential health insurance coverage to their full-time employees and their dependents — or face potential penalties. Minimum essential coverage includes:
- Hospital and doctor visits,
- Maternity care,
- Mental health care, and
- Prescription drugs.
Plans also must be “affordable” and provide at least “minimum value.” In other words, the employee’s share of the premium must be no more than 9.5% of his or her annual household income. And the health plan’s share of the total costs of covered services must be at least 60%. Several safe harbors apply, however.
If your plan doesn’t satisfy these requirements and you have at least one employee who receives a premium tax credit for purchasing insurance from one of the new public marketplaces under the ACA, your penalty will be the lesser of $2,000 per full-time employee in excess of 30 full-timers or $3,000 for every full-timer receiving the credit (prorated and calculated on a monthly basis).
If you don’t offer any coverage and just one full-timer receives a credit, your penalty equals $2,000 per full-timer in excess of 30 full-time employees (also prorated and calculated on a monthly basis).
When comparing the costs of providing coverage to your projected penalties, remember that health insurance premiums are tax deductible but penalties are not.
Assess small employer options
Many small dealerships already provide coverage — and plan to continue offering coverage — to attract and retain skilled workers. The ACA offers a cost-effective alternative for purchasing coverage. Dealerships with the equivalent of fewer than 50 employees may enroll in the government-run Small Business Health Options Program (SHOP).
For 2014, you can apply on paper through your insurance agent or broker. Online enrollment won’t be available until it’s time to sign up for 2015 coverage. The SHOP will open to dealerships with up to the equivalent of 100 full-time employees in 2016.
Small auto dealers may also be eligible for the health care coverage tax credit, but only in limited circumstances. (See the sidebar “Tax credit may be hard to come by.”)
NADA encourages all dealers, large or small, to tackle health care issues as soon as possible. CPAs can help dealer-owners avoid penalties, minimize insurance costs and take advantage of possible tax credits.
Tax credit may be hard to come by
The Affordable Care Act’s health care coverage tax credit is intended to encourage small businesses to offer health coverage. But, realistically, most dealerships won’t qualify for the credit — and those that do likely won’t enjoy the maximum credit available.
Beginning in 2014, the credit will be limited to coverage purchased from the SHOP marketplace. (See main article.) Many dealers already provide insurance from private carriers and may be reluctant to change to a government-run system.
In addition, the maximum tax credit — 50% of the annual premiums paid for employee coverage — is available only to dealerships with 10 or fewer full-time equivalent employees (FTEs) that pay average annual wages of $25,000 or less per FTE and that contribute at least 50% toward employees’ self-only health insurance premiums. Dealers with 25 or more FTEs or average annual wages of $50,000 or more per FTE aren’t eligible. (Note: FTEs are calculated slightly differently for purposes of taking the tax credit than under the shared-responsibility provision.)
Also excluded from the credit are premiums paid for owners with more than a 2% interest in the dealership and their family members. Finally, the credit can be taken for only two years and is nonrefundable.